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CONGRESS PASSES TAX RELIEF FOR MILITARY FAMILIES
Congress moved on May 22 to ease the economic hardships of military families by passing a $2 billion package of tax breaks.
The Senate, by voice vote, approved the legislation that the House passed just two days before on a 403-0 vote. It now goes to President Bush for his signature.
The legislation, supported by major service organizations, allows active-duty reservists to make penalty-free withdrawals from retirement plans and provides a tax credit for small business employers who make up the difference of wages lost to employees called to active duty.
It makes thousands of veterans eligible for low interest homeowner loans and makes permanent the ability to include combat pay as earned income for purposes of the Earned Income Tax Credit.
The measure also clarifies that those on active duty who file a joint tax return will be eligible for the economic stimulus rebate payment even if the spouse does not have a Social Security number.
Congress timed action on the Heroes Earnings Assistance and Relief Tax Act, or HEART Act, to coincide with the approach of Memorial Day.
The bill is paid for by closing a loophole where federal contractors set up sham companies overseas to avoid paying Social Security and Medicare taxes.
HUNDREDS OF THOUSANDS OF TAXPAYERS WILL NOT RECEIVE REBATE
When Maulit Shelat heard about the Bush administration's plan to pump up the economy by sending out stimulus checks, he sat down with his wife and drew up a list of priorities; first up, remodeling the bathroom.
But Shelat is married to a foreigner who still has not completed the often years-long process that allows her to apply for a Social Security number. Her not having that number makes even him ineligible for the tax rebate checks.
He is among an estimated hundreds of thousands of taxpayers, from legal immigrants to soldiers based abroad, who will be getting a share of the stimulus package because of a provision aimed at preventing immigrants in the U.S. illegally from getting rebates.
When lawmakers decided to send out the checks, ranging from $300 to $600 per adult taxpayer, plus another $300 for each child, they formulated it so only taxpayers who have Social Security numbers would qualify.
The rule unintentionally caught many taxpayers who would have qualified for the bonus, except they filed jointly with a spouse whose immigration status does not allow them to have a Social Security number. Among them are some of the 288,000 troops stationed overseas who may have married a foreigner.
It is not clear how many members of the armed forces posted abroad have married foreigners. But officials in overseas bases say they cannot do anything about the policy.
The Heroes Earnings and Relief Act has provisions to include these taxpayers in the 2008 Stimulus Rebate. They would not qualify for the "advance" but would receive it on their 2008 tax return.
SOME STIMULUS CHECKS SENT TO WRONG ACCOUNTS
Through the wonders of modern technology, some of the advanced 2008 stimulus payments are being directly deposited into recipients' bank accounts.
But some are not, and are instead winding up in the bank accounts of complete strangers.
One taxpayer, who asked not to be identified, reported that he had discovered an unexpected deposit of $1,800 in his bank account. He said a review of his bank records revealed that it was a deposit from the IRS bearing another taxpayer's Social Security numbers.
Those taxpayers receiving misdirected IRS deposits must report the mistake to their bank. Similarly paper checks sent to incorrect recipients must be mailed back to the IRS and any money spent before the recipient is aware of the mistake must be repaid.
u.s. MAY REVISE PAYMENT OF SOCIAL SECURITY CHECKS
Concerned that "payday" and other high interest storefront lenders are improperly capturing Social Security payments from elderly and disabled beneficiaries, the Social Security Administration has announced it would likely change how it delivers some benefits.
More than 80% of Social Security recipients receive their benefits by direct deposit thanks largely to federal rules making it mandatory unless recipients opt out.
The government says direct deposit is cheaper than printing millions of paper checks each month, but also safer for recipients because checks can be stolen or destroyed.
While the direct deposit program has been a success, a growing number of high interest lenders in recent years have used the direct-deposit program to help them capture loan payments and fees from Social Security benefits.
Social Security recipients with direct deposit can effectively use their anticipated Social Security benefits as collateral for short-term high interest loans taken out from high -interest lenders and check cashers.
Some lenders require borrowers to have their checks deposited directly into banks that partner with the lenders as a condition of obtaining a loan.
Some lenders "attempt to exercise too much control" over payments sent to Social Security recipients that are then automatically transferred to the lender.
Some high-interest lenders arrange bank accounts, typically in other states, that provide no checks or ATM cards to the borrowers.
That means borrowers can access their monthly Social Security benefits only by visiting the lender to pick up what remains after loan payments, including interest and fees are deducted.
The Social Security Administration's request for comment centers on "master/sub accounts;“ which allow institutions to receive Social Security benefits for many individuals and allocate them to "sub accounts" in each recipient's name.
The agency initially established the master/sub-account arrangements so it could send Social Security benefits directly to investment accounts, nursing homes and religious orders with vows of poverty. According to the notice, such arrangements are supposed to be "freely revocable" by the benefit recipient.
However, the agency said it is "troubled" by loan-agreement provisions "designed to prevent the beneficiaries from terminating direct-deposit arrangements or preauthorized transfers, and thus dissuade beneficiaries from taking actions they may have the lawful right to take.”
The agency said it is seeking information from beneficiaries, lenders, advocates, and other members of the public so it can revise the payment procedures "to help beneficiaries avoid some of the unfortunate outcomes that may result when they enter into agreements with some payday lenders:'“
KEY TRENDS IN TAX DATA
Taxes are unpleasant and unfair. We have all heard this. And government works hard to keep it that way. The only thing
about taxes that all Americans can agree on is that someone else should pay them.
Perhaps we can learn something by examining how much we pay in taxes, who pays them and how our tax payments have changed in the last 20 years or so. We can do this pretty easily thanks to one of our tax-supported government agencies, the Internal Revenue Service.
Every year, the IRS examines all the returns that are filed and analyzes changes in the patterns of tax payments. The latest
year for which the data is complete is 2005.
The basic data is available in the imaginatively titled work, "Individual Income Tax Rates and Shares, 2005:“ Here are the key lessons of that data:
Historically, it is basically same-old, same-old. In 2005 those of us who paid income taxes collectively paid
13.6 percent of our income. Some paid more. Some paid less. But the average burden was not exactly overwhelming.
Today, fewer people pay income taxes. In 1986, Americans filed 103 million federal income tax returns. Of those, 84 million had to pay some taxes. That is 81.5 percent of all returns. By the time Bill Clinton took office, the percentage of filers paying taxes had declined to 75 percent. During the Bush years, the percentage of filers who paid taxes continued to decline. It fell to only 67.4 percent in 2005.
This is not a minor number. In 2005, about 134 million American households filed tax returns. Only 90 million of them paid any taxes. While the number of households filing returns rose by 5 million, the number of households actually paying income taxes fell by 6 million. Basically, 11 million lower-income households do not have to pay income taxes that would have had to pay taxes before the Bush tax cuts.
Of course, the federal income tax is not the only tax that we pay. Anyone who works pays the employment tax, a stiff 15.3 percent of wage income.
Today, the rich pay more; the poor pay less. Those with high incomes continue to pay at much higher tax rates than those with lower incomes. They also pay much more of the total tax bill. Only 953,000 taxpayers, about 1 percent of the total who paid taxes, paid at the top 35 percent tax rate in 2005. They paid $315.4 billion in taxes on their $1,094 billion in income.
The most common marginal tax rate is 15 percent. That is the rate paid by 54.4 million taxpayers. This means the typical taxpayer pays at less than half the tax rate of the top earners.
The second most common marginal tax rate is 10 percent. About 25.5 million taxpayers pay taxes at that rate. This group pays taxes at one-third the rate paid by the highest-income taxpayers. So of the two-thirds of all households that pay anything in income taxes, about three-quarters pay at 15 percent or less.
Another 22 million, 3.7 million and 1.5 million households pay income taxes at marginal rates of 25 percent, 28 percent and 33 percent, respectively. In the year 2000, this top 25 percent of all taxpaying filers paid a whopping 83.6 percent of all income taxes. By 2005, they paid 85.6 percent of all taxes. So in spite of tax rate cuts for the well-off, the share of taxes paid by the well-off has risen.
What does all this mean?
Simple. When political talk turns to tax "fairness;' no political candidate mentions where a high income begins.
Thinking you might want to know:
You were in the top 25 percent of taxpayers in 2005 if your taxable income exceeded $61,055.
Millions of Americans have no idea what fat cats they are.
IRS FACES THINNING RANKS
The Internal Revenue Service is facing a troublesome manpower drain, as a whopping average of 16 percent of its total work force is now leaving the agency each year.
The soaring employee turnover rate has raised eyebrows and concerns among members of the IRS Over Sight Board, which warned that the tax service is losing a distressingly large number of talented workers who "possess skills and institutional knowledge that are extremely difficult to replace:'“
In its annual report on the condition of the IRS, the Over Sight Board said that it is growing deeply concerned about the state of the IRS's human capital. Noting that the tax service ultimately relies on a very talented, skilled, knowledgeable and dedicated workforce to accomplish its mission at a high level, the report reminded top IRS officials that, "This talented workforce cannot be taken for granted:'“
Although the warning signs of an IRS manpower drain have been evident for a number of years, the Over Sight Board suggested that the problem is growing more serious due to the agency's aging workforce.
Currently, about 4,000 of the agency's 100,000-person staff retire each year, and today more than 14,000, nearly 14 percent, are eligible to exercise that option at any time.
What may be even more disturbing for personnel managers at the tax service is that these retirements account for only one quarter of the total employee turnover each year.
Resignations of IRS workers in their prime, who leave to join other agencies or private sector firms, are stripping the tax service of its "problem solvers and mentors:“ the report suggested.
Staffing losses are especially high for recently hired revenue agents and revenue officers, employees considered to be mission-critical by IRS officials.
While the Over Sight Board offered little advice on what the IRS should do better to retain its existing workforce, the report bubbled over with suggestions for replacing its departing employees.
In urging the tax service to place more emphasis on bringing new workers on board, the report called on the IRS to recruit like the private sector.
If the IRS is to replace its retirees with skilled individuals, it must change its recruitment strategies and tactics, the report noted. Significantly, the over sight group said that the IRS's own managers believe that the agency's recruitment efforts are out of date.
IRS WARNS OF FAKE E-MAIL, PHONE CALLS FROM IDENTITY THIEVES
Taxpayers who scrambled to meet the April 15 tax filing deadline have something else to worry about this year, an uptick in scams that prey on the unsuspecting.
Nothing appears too brazen for the con artists seeking to commit identity theft at the taxpayer's expense.
In one example, an e-mail message recently informed a reporter that a $134.80 tax refund was waiting. The e-mail, falsely claiming to have originated from the Internal Revenue Service, indicated that the taxpayer could transfer the refund to his credit or debit card by submitting personal information, including a credit card number and a Social Security number.
The IRS said such e-mails are fakes because the agency does not communicate with taxpayers through unsolicited e-mails about refunds, rebates or sensitive tax matters. The tax agency added that the purpose of the scams is to trick taxpayers into disclosing personal information that can be used to commit identity theft, empty the victim's bank accounts or run up charges on existing credit cards.
"The internet criminals know that more people are using internet and e-mail services, so they try and dupe people;' said Kevin McKeon, an IRS spokesman in New York.
Individuals have reported receiving the following e-mail:
IRS Logo -Internal Revenue Service
United States Department of the Treasury Over 130 million Americans will receive refunds as part of President Bush program to jumpstart the economy.
Our records indicate that you are qualified to receive the 2008 Economic Stimulus Refund. The fastest and easiest way to receive your refund is by direct deposit to your checking/savings account.
Please click on the link and fill out the form and submit before May 12, th,2008 to ensure that your refund will be processed as soon as possible.
Submitting your form on May 15 tt, 2008 or later means that your refund will be delayed due to the volume of requests we anticipate for the Economic Stimulus Refund.
To access .Economic Stimulus Refund, please click here.
So beware of any e-mail that claims it is from the IRS.
CHARITABLE DEDUCTION AVAILABLE FOR SPECIAL LICENSE PLATES
The Internal Revenue Service has released a letter issued to a member of the United States House of Representatives regarding the deductibility of amounts paid to the State of Minnesota for a special license plate relating to the conservation of natural habitats. The IRS noted in the letter that Minnesota charges an extra $30 over and above the regular license plate fee for such license plates. The $30 is used to buy and manage habitats for public use.
The letter goes on to say that when a taxpayer has the intention of making a gift, purchases an item from a qualified charity, the excess of the payment made over the value received is a charitable contribution.
No Internal Revenue Code is cited however the statutory support for this deduction is found in §170(c)(l).
MEDICARE PART B PREMIUMS: NEW RULES FOR BENEFICIARIES WITH HIGHER INCOMES 2008
The Medicare Modernization Act of 2003 changed how Medicare Part B premiums are calculated for some higher income beneficiaries. The majority of Medicare beneficiaries are not affected. Part B, medical insurance, helps pay for doctors' services and outpatient care. It also covers other medical services, such as physical and occupational therapy, and some home health care. For most beneficiaries, the government pays a substantial portion, 75 percent, of the Part B standard premium and the beneficiary pays the remaining 25 percent.
Beginning in 2007, the government portion was reduced for higher income beneficiaries who began paying a larger percentage of the premium based on income they reported to the Internal Revenue Service. In 2008, higher income beneficiaries will be responsible for 67 percent of their income-related adjustment. By 2009, the end of the transition period, these higher income beneficiaries will pay a monthly premium equal to 35, 50, 65, or 80 percent of the total Part B cost, depending on their income level.
However, the law is expected to affect only about 4 to 5 percent of Medicare beneficiaries, so most people will continue to pay the standard premium, without an income-related adjustment.
To determine if you will pay a higher Part B premium, the IRS will send Social Security information from your most recent tax return. A sliding scale will be used to make adjustments to premiums. The sliding scale will be based on your modified adjusted gross income, MAGI. Your MAGI is a combination of your adjusted gross, taxable, income and tax exempt interest income.
In 2008, if you file your taxes as "married, filing jointly" and your MAGI is more than $164,000, you will pay a higher Part B premium. For all other taxpayer filing statuses, if your MAGI is more than $82,000, you will pay a higher Part B premium.
After getting the IRS data, if it is determined you will need to pay a larger percent of the premium; you will receive a letter explaining how the determination was made and what your new premium will be. However, it is important to remember that if your income does not exceed the limits described; this law does not apply to you.
To determine your 2008 Part B premium, the most recently filed tax return information will be provided by IRS. Generally, this information is from a tax return filed in 2007, for tax year 2006. Sometimes, IRS can only provide information from a return filed in 2006, for tax year 2005. If tax year 2005 data is used and you filed a return for tax year 2006 or did not need to file a tax return for tax year 2006. you should visit the Social Security office nearest you.
If you amended your tax return and it changed the income counted, you should let the Social Security Administration know. Send a copy of the amended tax return that you filed and your acknowledgment receipt from IRS. Social Security will update their records with the information provided and correct your Part B premiums back to the earliest time in the year you had Part B.
If your income has gone down due to any of the following circumstances and the change will make a difference in the income level considered, contact Social Security to explain that you have new information and may need a new decision about your Medicare Part B premium:
You married;
You divorced or your marriage was annulled;
You became a widow/widower;
You or your spouse stopped working or reduced work hours;
You or your spouse lost income from income-producing property due to a disaster or other event beyond your control; or
You or your spouse's benefits from an insured pension plan stopped or were reduced.
If any of these events happen, you will need to show the Social Security Administration evidence of the event and tell them how it has reduced your income. Evidence could be a death certificate, a letter from your employer about your retirement, or something similar. If you filed a federal income tax return for the year in question, you will need to show a signed copy of the return.
If you disagree with the decision regarding your Medicare Part B premium amount, you have the right to appeal. You may request an appeal in writing by completing a "Request for Reconsideration”: Form SSA-561-&2, or you may contact your local Social Security office to file your appeal, or request a copy by calling the Social Security Administration.
You do not need to file an appeal if you are requesting a new decision because of an event listed that made your income go down or if you have shown the information used to be wrong.
Contact information:
Social Security 1-800-772-1213
www.socialsecurity.gov/mediinfo.htm
Medicare Part B 1-800-633-4227
www.medicare.gov.
DEDUCTIBILITY OF VISION CORRECTION SURGERY
Revenue Ruling 2003-57
Medical expenses. This ruling holds that amounts paid by individuals for procedures that are directed to improving appearance and do not promote the proper function of the body are not expenses for medical care deductible under section 213 of the Code unless the procedure is necessary to correct a deformity arising from a birth defect, disfguring disease, or injury.
Issue:
Are amounts paid by individuals for breast reconstruction surgery, vision correction surgery, and teeth whitening medical care expenses within the meaning of section 213(d) and deductible under section 213 of the Internal Revenue Code?
Facts:
Taxpayer A undergoes mastectomy surgery that removes a breast as part of treatment for cancer and pays a surgeon to reconstruct the breast. Taxpayer B wears glasses to correct myopia and pays a doctor to perform laser eye surgery to correct the myopia. Taxpayer C's teeth are discolored as a result of age. C pays a dentist to perform a teeth-whitening procedure. A, B, and C are not compensated for their expenses by insurance or otherwise.
Law and analysis:
§213(a) allows a deduction for expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, spouse, or dependent, to the extent the expenses exceed 7.5 percent of adjusted gross income. Under §213(d)(l)(A), medical care includes amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.
Medical care does not include cosmetic surgery or other similar procedures, unless the surgery or procedure is necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease.
Cosmetic surgery means any procedure that is directed at improving the patient's appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease. §213(d)(9)(B).
A’s cancer is a disfiguring disease because the treatment results in the loss of A’s breast. Accordingly, the breast reconstruction surgery ameliorates a deformity directly related to a disease and the cost is an expense for medical care within the meaning of §213(d) that A may deduct under §213, subject to the limitations of that section.
The cost of B's laser eye surgery is allowed under §213(d)(9) because the surgery is a procedure that meaningfully promotes the proper function of the body. Vision correction with eyeglasses or contact lenses qualifies as medical care. Rev. Rule. 74-429, 1974-2 C.B.83. Eye surgery to correct defective vision, including laser procedures such as LASIK and radial keratotomy, corrects a dysfunction of the
body. Accordingly, the cost of the laser eye surgery is an expense for medical care with in the meaning of §213(d) that B may deduct under §213, subject to the limitations of that section.
In contrast, the teeth-whitening procedure does not treat a physical or mental disease or promote the proper function of the body, but is directed at improving C's appearance. The discoloration is not a deformity and is not caused by a disfiguring disease or treatment. Accordingly, C may not deduct the cost of whitening teeth as an expense for medical care.
Holding:
Amounts paid by individuals for breast reconstruction surgery following a mastectomy for cancer and for vision correction surgery are medical care expenses under §213(d) and are deductible under §213, subject to the limitations of that section. Amounts paid by individuals to whiten teeth discolored as a result of age are not medical care expenses under §213(d) and are not deductible.
FINANCIAL TIPS FOR RECENT COLLEGE GRADS
Elizabeth Heenan never thought much about money. Her parents paid her college tuition, and they rarely spoke about their finances.
But after several overdrawn checks, "I thought I needed to face the music;” says the 21-year old, who will graduate soon from Johns Hopkins University.
So Ms. Heenan enrolled in a personal finance class taught at Hopkins by Stuart Ritter, a financial adviser at T. Rowe Price. Now more confident and better informed about money, Ms. Heenan and financial professionals have a few suggestions for the class of 2008.
The good news is that recent graduates are much more realistic than previous generations were about retirement. New grads do not expect to receive a pension, and they are skeptical about Social Security. The bad news: They have to know more than previous generations about how to make decisions about savings, health care and insurance.
Many also are graduating with student loans and credit-card debt. A report released in March by the American Saving Education Council and the AARP found 83% of those surveyed have some nonmortgage debt.
"We have had a major paradigm shift where pensions are going, going, gone;“ says Rande Spiegelman, vice president of financial planning for the Schwab Center for Financial Research. "Kids now know that there is no illusion. They know that no one will take care of you but yourself.”
Mr. Ritter of T. Rowe Price admits he did not know much about finances when he graduated from college. As a result, life was either feast or famine. The first paycheck of the month went to rent, leaving him with little cash and lots of macaroni and cheese. The second paycheck left him flush with cash to spend on meals and entertainment. Not a good plan, he admits. Everyone needs a budget, he said, but "be patient and flexible.”
Ms. Heenan says trade-offs are a part of life. Buying that great car might mean taking longer to save for a house.
Mr. Spiegelman encourages grads to start saving immediately, even if they have loans and credit-card debt. The reason: They will not miss it if they begin saving right away. If they are lucky enough to have a job with a 401(k) plan, he recommends saving at least the amount that the company will match.
He advises employees to automate the process so money comes directly out of their paychecks and to consider a life-cycle or target-date fund until they are ready to make portfolio decisions.
Another top priority: Grads need to save cash to cover at least three months of necessary expenses, such as rent and food. They also need to payoff high-interest credit-card debt.
If there is money left, Mr. Spiegelman encourages them to save at least 10% to 15% of their total income in a 401(k) plan. If they do not have a 401(k), then they should consider opening an individual retirement account.
Rachel Poor, another Johns Hopkins senior, learned in Mr. Ritter's class that new grads need to make sure they have appropriate insurance, which includes health and possibly renter's insurance. Many students will lose their health coverage the moment they graduate even if they plan to move back home.
WHEN 20-S0METHINGS MOVE BACK HOME, IT IS NOT ALL BAD
In a new twist in U.S. family life, the open nest is replacing the empty nest.
More young adults are returning home to live with their parents in their 20s, and a surprising number of parents are content about it. Based on a new collection of studies, the deepest look so far at the failure-to-launch trend, the pattern is likely to persist. And as it becomes more wide-spread, researchers say, the stigma traditionally linked to young adults' living at home will fade.
More upper-and-middle-income parents, including many who felt pressed for time when their children were growing up, are not ready to be "finished with them" by their 20s, says Katherine Newman, a Princeton University Sociology professor and one of the project's 20 researchers. Also, as more students attend college at older ages, parents are coming to regard the 20s as a time of self-discovery.
The proportion of 18 to 34-year olds living with their parents has risen by an estimated five percentage points since 1980, to roughly 34%, says Aaron Yelowitz, an associate professor of economics at the University of Kentucky and a contributor to the collection of studies "The Price of Independence;“' published by the Russell Sage Foundation.
To be sure, living together still causes tension for parents and kids alike. Living with parents reduces young adults' life satisfaction, Dr. Newman found. But the more widespread the practice, the less psychological toll it takes, she says. In southern Europe, where as many as 60% of young adults live at home, the stigma has eased; she cites research showing more than half of European adults think living longer with one's parents is a good thing.
Researchers on the project set out to document economic factors driving the trend, but found it is bigger than the financial causes usually blamed for it. To be sure, rising housing and commuting costs play a role, Dr. Yelowitz found. But neither those factors nor job-market changes fully explain the 25-year-trend. The biggest increase in young adults living with parents came in the 1980s, when the labor market generally improved, he found. And rising real housing costs explain only about 15% of the drop in independent living among young adults, which started years before the sharpest run-up in housing.
More enduring cultural and social changes are at work, including a growing "child-centeredness" among families, Dr. Newman says. Many parents enjoy having adult kids around as long as they pursue "a future they can endorse:'
WHAT ARE THE BENEFITS OF WORKING LONGER?
Choosing when to retire is a crucial decision for workers. Working longer increases lifetime earnings, Social Security and employer-sponsored pension credits, and other savings, and shortens the period over which retirement savings must be spread.
On average, working an additional year increases annual retirement income about 9%.
Working an additional five years boosts annual retirement income about 56%.
The impact is even larger for people at the lower end of the income distribution. Boosting labor supply at older ages also increases government tax revenue.
The government would raise about $180 billion in additional tax revenue in 2045, measured in 2006 dollars, if all workers delayed retirement by one year, reducing the unified federal deficit by an amount equal to 28% of the Social Security deficit.
Additional tax revenue in 2045 raised by delaying retirement 5 years would exceed $1 trillion, more than 150% of the Social Security deficit.
Working longer may also improve emotional well-being and physical health.
Because work is crucial to many workers' personal identities, retirement can lead to a partial loss of identity, especially for those who retire abruptly.
Work promotes social integration and social support.
Staying active may promote physical health. What Are the Characteristics of Today's Older Workers?
In 2004 about three-quarters of men age 55-61 were employed. Male employment rates fell to about 53% at age 62-64, about 38% at age 65-69, and about 26% at age 70-74.
Older women are less likely to work for pay than older men. In 2004, female employment rates were about 50% at age 55-61, 40% at age 62-64, and 28% at age 65-69.
Employment rates at older ages increase with education, and are higher among those in better health than those in worse health. Among men, whites have higher employment rates than African American. Black-white employment differentials are smaller among older women than older men. Many older workers are self-employed, and self-employment rates increase with age.
In 2004, about 45% of working men age 70-74 were self-employed, compared with 29% at age 62-64.
About 28% of job changes following retirement from long-term career jobs involve transitions from wage and salary employment to self-employment.
Self-employment rates increase with education among older men; about 56% of working male college graduates age 70-74 were self-employed in 2004.
Self-employment rates are lower among older women than older men.
Part-time and part-year work is common at older ages.
About 42% of employed men age 65-69 and 62% age 70-74 worked part-time in 2004. Part-time rates for women were about 59% at age 65-69 and 73% at age 70-74.
About 56% of job changes following retirement from long-term career jobs involve transitions from full-time work to part-time work.
At age 65-69, about 30% of employed men and employed women worked only part of the year, less than 50 weeks, in 2004.
Traditional retirements, involving direct transitions from full-time work to no work, are not the norm.
About 60% of older people work after retiring from career jobs.
About one-third of workers change occupations after age 51.
About one-quarter of older adults 'unretire' returning to work after leaving the labor force.
Many older people lose their jobs or stop working because of health reasons.
About 21% of workers age 51-55 in 1992 were subsequently laid offbefore age 62.
About 25% of workers age 51-55 in 1992 subsequently developed health-related work limitations before age 72, including 32% of those who did not complete high school.
About 35% of older workers who left fulltime jobs between 1992 and 2006 separated for health reasons or because of layoffs, including 39% of African Americans, 42% of Hispanics, and 45% of those who did not complete high school.
How Has Older Americans' Labor Supply Changed in Recent Years?
After declining for most of the 20 th century, labor force participation rates for older men have been increasing during the past two decades.
Between 1992 and 2007, participation rates for men age 62-64 increased from 41 to 51 %, an increase of 24% over the 15-year period. Over the same period, male participation rates at age 65-69 increased from 22 to 34%, an increase of about 55%. Participation rates grew more slowly at age 55-61, increasing from 71 to 76% between 1992 and 2007.
College graduates generally experienced sharper increases in participation rates than those with less education. Between 1992 and 2007, for example, male participation rates increased 10% for college graduates age 62-64, while increasing only 5% for men with only high school diplomas.
Participation rates for older women were relatively constant between 1968 and the late 1980s, but they have been increasing steadily since 1988.
Between 1988 and 2007, participation rates for women age 55-61 increased from 44 to 64%, while increasing from 25 to 43% at age 62-64.
Participation rates doubled between 1988 and 2007 for women age 65-69, to 26%, and for women age 70 and older, to 8%.
Recent Social Security reforms also appear to have increased labor supply at older ages.
The retirement earnings test, which reduces Social Security payments to beneficiaries with earnings above certain thresholds, was eliminated in 2000 for people beyond the normal retirement age.
The normal retirement age began increasing for people born after 1937, and will rise to age 67 for those born after 1959. As a result, those who take early benefits now experience larger actuarial reductions in their monthly benefits than in the past.
The delayed retirement credit has been increasing gradually. For people born in 1943 or later, monthly benefits will increase 8% for each year that beneficiaries delay claiming benefits beyond the normal retirement age, but before age 70.
Concerns about retirement security appear to have contributed to increasing labor force participation rates at older ages.
Much of the increase over the past dozen years in expected retirement ages among adults in their early 50s appears related to the decline in employer-sponsored defined benefit pension coverage and retiree health insurance offers.
Defined benefit pension plan coverage plummeted between 1980 and 2006, falling from 39% of the private-sector wage and salary workforce to 20%.
Many employers are eliminating retiree health insurance or providing less generous coverage than they provided in the past. Between 1993 and 2005, the share of private-sector employers with 500 or more workers offering retiree health benefits to retirees younger than age 75 fell from 46 to 29%.
Health gains at older ages may also have boosted labor force participation rates.
The share of people age 55-64 and age 65-74 describing their overall health as fair or poor has declined steadily since 1982.
Health gains, however, have slowed since the mid-1990s, and rising obesity and diabetes rates may presage future health declines.
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